For Lower Gas Prices, Scrap the Jones Act

By Colin Grabow of Cato.

"Drawing attention to rising gas prices this week, Senate Minority Leader Charles Schumer (D-New York) called for President Trump to ease pain at the pump by leveraging his relationships with key OPEC leaders as well as the presidential bully pulpit to exert pressure on oil companies. “These higher oil prices are translating directly to soaring gas prices, something we know disproportionately hurts middle- and lower-income people,” the senator added.

While his apparent belief that gas prices are determined more by the whims of corporate leaders than market forces is severely misguided, Sen. Schumer’s stated concern for the welfare of American consumers is welcome. Rather than rely upon President Trump’s ability to cajole foreign and corporate leaders into lowering the cost of gas, however, Sen. Schumer should introduce legislation to repeal the Jones Act.

Passed in 1920, the Jones Act mandates that ships which transport goods between domestic ports be U.S.-built, U.S.-flagged, and at least 75 percent U.S.-owned and crewed. Such strictures, in turn, raise transportation prices by eliminating access to cheaper options which do not meet these requirements. This cost increase reverberates throughout the economy, with few parts harder hit than the energy sector. Although the total cost of the distortions imposed upon this key industry is unknown, anecdotal evidence suggests that it is significant. Consider:

• A 2014 Congressional Research Service report found that the purchase price of U.S.-built tankers is “about four times the price of foreign-built tankers, and U.S. crewing costs are several times those of foreign-flag ships.” Given such a cost structure it’s no surprise the report also found that shipping crude oil from the Gulf Coast to the Northeast on Jones Act-compliant tankers costs roughly three times greater than shipping the oil a longer distance to Canada on foreign-flagged ships ($5 to $6 per barrel versus $2 per barrel). Professor James Coleman of Southern Methodist University, meanwhile, points out that refineries in this part of the country “pay more than three times as much to ship oil from Texas rather than from West Africa or Saudi Arabia.” 
• A 1999 Government Accountability Report (GAO) report stated that, incredibly, the cost to ship oil from Alaska’s North Slope aboard foreign-crewed and built ships to the U.S. Virgin Islands—which is exempt from the Jones Act—was approximately three times less than to the Gulf Coast on Jones Act vessels ($2.35 per barrel versus $7.15 per barrel).
• A 2013 GAO report noted that “representatives of airlines purchasing jet fuel for use in Puerto Rico told us that they typically import fuel to the island from foreign countries, such as Venezuela, rather than from Gulf Coast refineries.” This occurs, the report added, “because of difficulty in finding available Jones Act vessels to transport jet fuel and, when vessels are available, the high cost of such shipments compared to shipping the product from foreign countries.”
• According to the CEO of the Overseas Shipping Group, a provider of energy transportation services, the cost of hiring a Jones Act ship for crude service is about three to four times higher than using a foreign-flagged vessel. 

This is but a sample of the costs imposed by the Jones Act, which drives up the price of gas and all manner of goods purchased by Americans. If Sen. Schumer and his fellow Democrats are serious about their desire to ease the financial burden placed on Americans by the rising cost of oil, scrapping or deeply reforming this nearly 100-year-old law would be an excellent place to start."